James Meadway signs off on the accounts

I started writing this column last year, in the wake of the financial chaos unleashed by Liz Truss and Kwasi Kwarteng grabbing hold of the reins of the British economy – and shortly before both were hastily removed in an extraordinary display of power by the Bank of England.

It’s ending with that same financial chaos spreading across the globe, from the rolling US banking crisis, which last week saw First Reserve Bank gobbled up by giant JP Morgan, to the far more serious debt defaults and crises rippling across the developing world. The cost-of-living crisis, meanwhile, has only worsened since then.

Although energy prices have eased off globally, households in Britain and across the world are now confronted by the skyrocketing prices of food – and sometimes, as we’ve seen in the last few weeks, outright shortages.

If there’s been a theme running through all of them, it’s been the combination of the immediate and destabilising impacts of financial turmoil running hard into the longer-term dangers represented by the cost-of-living crisis.

As inflation has picked up across the world, central banks have been panicked into jamming up interest rates in the belief this will help bring price rises back under control. Led by the US central bank, the Federal Reserve, those global rate rises have increased the cost of borrowing – and exposed the real weaknesses of financial institutions that had got a bit too used to the very low rates of the last decade and more.

But those same rate rises won’t work, because they target the wrong source of the inflation. The central banks do it because they believe that by making borrowing more expensive, less will be bought and sold. If less is bought and sold, the thinking continues, firms will hire fewer people and unemployment may rise.

At the final link in the chain, rising unemployment will frighten workers away from demanding higher pay – and so will remove the pressure on firms to put up prices.

It’s a pretty brutal logic, but central bankers and senior figures like Barack Obama’s former chief economic adviser, Larry Summers, have spelled it out – Summers managing to do so, with a stunning lack of self-awareness, from what looked like a tropical island holiday.

But it won’t work because it’s not workers’ pay making prices go up. If anything, it’s profits, as even the European Central Bank now admits. As huge disruptions to the global economy have rolled out over the last few years – Covid and Russia’s invasion of Ukraine most notably – shortages have grown up, and prices have risen.

But it’s been the huge companies, like the world’s fossil fuel giants such as BP and Shell, that have turned these price surges into mega-profits. They’ve been joined over the last year by the lesser-known but critically important global agribusinesses, which dominate the world’s food supplies. Research by the trade union Unite shows that the four largest saw their profits surge 255 per cent since the end of 2019.

None of this has anything to do with pay. All grinding interest rates up is doing is adding to the misery, whether in the increased risk of unemployment, or the dramatically higher mortgage payments faced by nearly a million people in Britain.

Worse, the evidence is now coming in that the disruptions brought about by climate change and crises in the natural world have a direct impact on prices. When, for example, grain crops fail in India, due to torrential rains, the supply falls and the price is pushed up, as has happened over the last few months.

When those extreme weather events keep happening because of climate change, prices will rise consistently – and outright shortages can occur. The UN World Food Programme estimates that 345 million people across the world are at risk of famine this year – double the number in 2020. There are multiple causes for this, including the after-effects of Covid, but climate change and extreme weather are one of them.

Those impacts are being felt by us, too. When tomatoes weren’t available in British and Irish supermarkets earlier this year, blame was put on “bad weather” around the Mediterranean. This isn’t “bad weather” – it’s the impact of climate change, and Britain (as the government’s own Committee on Climate Change warned us last year) is seriously unprepared for it.

Fiddling about with interest rates will do very little in all this. Trying to blame workers asking for pay rises for inflation is worse than useless. Neither the Bank of England nor the government have a plan to tackle the multiple, interlocking crises we face.

Instead, it is the strikes of the last year and into this, when workers from train guards to nurses to driving instructors took action in defence of their standard of living, that offer a way forward – clawing back from the giant corporations and the super-rich what soaring prices have taken from us.

These are the real grounds for optimism that I hope, despite the worsening situation, the columns have always come back to: that all of us, if we are organised and prepared to fight, can make a difference.

James Meadway is an economist and director of the Progressive Economy Forum, an independent thinktank (progressiveeconomyforum.com)